OSBC2004: Open Source and Outsourcing

I'm at the Open Source Business Conference in San Francisco. I'm in Steve Korn's talk on Outsourcing and Open Source. Steve works for EDS and has some context on how outsourced IT services vendors are using open source. One interesting note from his introduction: they use Jabber internally and apparently with great success.

Steve talks about the stages he's seen outsourcing go through. In the past, firms outsourced under duress. They totally outsourced their IT services to a firm such as EDS. Next came leverage, function outsourcing. Firms now optimize their internal operations first and then outsource. Steve is starting to see usage-base outsourcing with service level agreements and contracts with declining prices overtime (called forward pricing). Outsourced vendors have to commit to these declining prices contractually.

Outsourcing is being driven by firms that have the majority of their IT spend going to fixed costs, but are being pressured to do more strategic projects. The only way to do that is to reduce costs, get more efficient and drive the fixed costs out to get some headroom to tackle the strategic projects.

Steve did a scan of several hundred EDS clients and discovered some interesting facts. Among medium sized clients, 25% were running on Linux. Government was at the top of the list for usage by sector and then manufacturing. Financial services was last. By region, Asia and Europe were the big leaders. He sees most clients going for a Linux+Windows+Unix solution, but the bias is to stay on proprietary software because they like predictability.

Steve refers to the Microsoft argument that showed that even a few hours of lost productivity for a $70K worker was not worth the risk of open source and responds with the observation that in many countries, workers are making a few hundred dollars per month. This reminds me of being in graduate school and trying to explain to students from other countries why it made sense to buy something instead of doing it ourselves (I managed the Robot Lab). They had a very strong "do it yourself" mentality because they came from cultures where labor was extremely cheap.